Filipinos who are inclined to saving in cash rather than invest in other instruments limit their growth potentials because the savings growth is outpaced by the growing costs, according to a study funded by a locally operating insurer.
Manulife Asset Management said that for every step forward toward meeting the financial goal, many fall half a step back because of the rising costs of retirement, living expenses, homes, education and health care.
In report titled “One step forward, half a step back: Meeting financial goals in Asia,” the insurer highlighted the top 5 financial goals across Asia.
These include saving for retirement, paying for the children’s higher education, meeting current living expenses, buying a home and saving for a rainy day, including unexpected healthcare costs.
“In the Philippines we looked into the goals of saving for a rainy day and for children’s higher education. We found that health care costs have increased by 11.9 percent annually over the past five years. The cost of education has risen an average of 8.2 percent a year over the past four years,” Michael Dommermuth, Manulife Asset Executive Vice President and Head of Wealth and Asset Management, Asia, said.
According to him, the cost of retirement, education, living expenses and health care in the Philippines has risen an average 8.1 percent a year the past five years.
Domestic investment portfolios only delivered average returns of 4.6 percent in the same period.
Dommermuth said the average investment return was 3.5 percent lower than the annual increase in the cost of consumers’ key expenses.
The research revealed that the limited investment growth was primarily the result of the high level of cash investors hold in their portfolios.
According to the survey, the average Filipino holds 38 percent of their assets in local currency with another 4 percent held in foreign currency. In total, cash represents 42 percent of assets.
Dommermuth said Filipinos are hardly alone, with survey respondents across Asia reporting that 37 percent of their assets are allocated to local currency and another 5 percent to foreign currency.
“Our research reveals that this level of cash holdings is the key factor preventing investors from generating returns that match or exceed the growth in the cost of their five leading financial goals,” he said.
Manulife Philippines Chief Investment Officer Aira Gaspar said reallocating a portion of this cash could increase returns and reduce the potential gap between investment earnings and growing cost:
“We found that shifting 50 percent of local currency holdings to higher yielding instruments could allow Filipinos’ savings to grow more rapidly and possibly reduce, if not eliminate, the potential returns shortfall.
One of the most effective ways for Filipino investors to improve the returns on their investments would be to diversify their investments across multiple asset classes and geographies. This will allow them to access greater opportunities for returns while also helping to moderate their level of risk.
“Well-balanced asset allocation has always been important, but these days investors need to be even more thoughtful and vigilant in managing their investment portfolios than in the past,” Gaspar said.